Attention! Exchange will cancel reverse trades if they are not genuine

Those who misuse the exchange platform to transfer losses or profits will have to find other ways. Indeed, the country’s largest exchange, NSE, is set to make some changes soon. Starting July 7, NSE will implement a Trade Cancellation Mechanism (RTCM) on an intraday basis, under which trades between two parties that create artificial volume or book profits/losses for tax purposes will be cancelled. The exchange, which had announced the changes in August last year, is all set to implement them. This will affect both equity and index contracts.

To begin with, the reverse trade cancellation mechanism will be launched in the spot market segment and later implemented in other segments.

How will transactions be monitored and reversed?

The exchange has communicated to brokers that all transactions between a PAN pair will be monitored on an intraday basis. When a new transaction takes place between a pair, the transaction quantity will be aggregated across either leg. For example, let's say PAN X is the buyer and PAN Y is the seller in the first leg, and in the second leg, PAN X is a seller and PAN Y is the buyer. At each transaction instance after the above aggregation, whenever the aggregate quantity of two legs between PAN X and PAN Y exceeds the thresholds, the transaction will be eligible for cancellation.

Quantity of reversals

According to the exchange's communication with brokers, a parameter will be set for trade reversal, which will be compared to the gross quantity traded on the market. The reversal mechanism was also explained. The reversal quantity will be the quantity bought and sold in the PAN pair (i.e. if a quantity of 1500 is bought in the PAN pair and a quantity of 1600 is sold in the pair of PAN, the reversal quantity will be 1500. The exchange has also defined a formula to determine the reversal ratio.

What will happen if the customer code is changed?

Any changes to the client code during market hours resulting in a cancellation of the transaction will also be canceled under the RTCM mechanism.

The mechanism will apply to normal continuous markets. In case of reversal of the transaction on a stock in the cash market segment, the exchange will automatically cancel the transaction on an intraday basis. Upon cancellation of transactions, brokers will receive a message on the trading terminals describing the transactions canceled by the exchange.

All transactions, including client code change, will be accumulated for clients based on symbol and contract to validate the reversal conditions. The reversal transaction cancellation mechanism checks will be performed from 10:30 for transactions from 9:15 to 10:30, and beyond until 15:00, meaning that the mechanism will not apply from 15:00 to 15:30.

RTCM for what type of titles?

The RTCM mechanism will be applicable to relatively illiquid securities or contracts. The list of such securities and contracts will be published by the end of the month and will be valid for the following month. Last year, the exchange had indicated that stocks beyond the Nifty 500 would be included.

The BSE has a similar mechanism, the Reversal Trade Prevention Check (RTPC), introduced in March 2016. In 2019, after a partial modification of the circular, the BSE ruled out its implementation in the derivatives segment on actions. In this mechanism, transactions are canceled if it is found that the exchange platform is being used for manipulation.

SEBI had observed massive misuse of options contracts on the BSE between April 1, 2014 and September 30, 2015. Due to the very high number of cases and the increasing burden on the decision-making process of the market regulator, the Securities Exchange Board of India (SEBI), and consequently a large number of appeals before the Securities Appellate Tribunal, SEBI had to come up with a special settlement plan twice.